Quick Facts

Substantial restructuring and the relatively dependable rule of law have facilitated Cabo Verde’s transition to a more open and flexible economic system. Property rights are strongly protected in comparison to other economies in the region, and the small island economy’s substantive reforms have reduced corruption and enhanced the quality of the regulatory environment.

Economic Freedom Snapshot

2016 Economic Freedom Score: 66.5 (up 0.1 point)

Economic Freedom Status: Moderately Free

Global Ranking: 57th

Regional Ranking: 3rd in Sub-Saharan Africa

Notable Successes: Rule of Law and Open Markets

Concerns: Management of Public Spending and Labor Freedom

Overall Score Change Since 2012: +3

While maintaining macroeconomic stability, Cabo Verde has made considerable progress in income growth and poverty reduction. The government continues to support policies that promote free trade and open markets, although public spending and debt are approaching levels that cause concern. The government has been winding down its ambitious public investment projects to ensure debt sustainability.

Background

Cabo Verde is a stable, multi-party parliamentary democracy. Jose Maria Neves of the African Party for Independence of Cabo Verde was appointed prime minister by the president in 2001 and again in 2006 and 2011. Opposition leader Jose Carlos Fonseca of the Movement for Democracy won the presidential election in 2011. The Cabo Verde islands have few natural resources. Services dominate the economy, and most of the country’s food is imported. Cabo Verde’s expatriate population is larger than its domestic population. Ongoing economic reforms aim to boost foreign investment and diversify the economy.

Broad political stability is underpinned by strong democratic institutions and decent protection of civic freedoms. Cabo Verde has relatively high levels of transparency and low levels of corruption compared to other African nations. Private property is reasonably well protected. The constitutionally independent judiciary is generally respected, but the judicial system is inefficient, and the case backlog causes significant delays.

The top personal income tax rate is 35 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax. The overall tax burden equals 18.5 percent of total domestic income. Government spending amounts to 33.2 percent of total domestic output, and the budget deficit equals over 8 percent of GDP. Public investment stimulus programs have added to a public debt that now exceeds annual economic output.

The business start-up process has been simplified, and the cost of launching a business now equals about 20 percent of average annual income. Despite efforts to increase labor market flexibility, the unemployment rate remains persistently high. The market determines most prices. The state subsidizes electricity, water, and a state-owned airline, but in 2015, the IMF praised efforts to improve their operational performance.

Cabo Verde’s average tariff rate is a relatively high 10.9 percent. Domestic and foreign investors are generally treated equally under the law. Several state-owned enterprises have been privatized since the 1990s. Banking continues to expand, and the number of non-performing loans has decreased. With credit generally allocated on market terms, small and medium-size enterprises have increasingly adequate access to financing.